CPCU® 551 Practice Exam Questions
The CPCU® 551 exam questions are tough. The CPCU® 551 exam consists of 85 multiple choice questions broken up into two sections, part A and part B.
Let’s look at an example of a Part A and Part B question. Below we will breakdown two sample questions, including an answer and full explanation, from the CPCU® 551 exam. These questions are written by AssociatePI, these questions come directly from our CPCU® 551 practice exam course.
CPCU® 551 Sample Exam Questions – Part A
Which of the following best describes retention as a risk-financing technique?
- Generating funds to pay for losses
- Adding higher limits on an insurance policy
- Backing up important documents using an external hard drive
- Insuring both property and auto
Answer: A) Generating funds to pay for losses
Retention is the process of saving or setting aside funds to pay for a loss. This is needed if the loss is not fully covered by insurance.
CPCU® 551 Sample Exam Questions – Part B
Mary just moved into her new condo. She lives in a relatively safe part of town, within five miles of a fire station, but would still like to use a risk-control technique to limit her property loss exposure. What action should Mary take?
- Purchase new door locks, a security system, and a fire alarm.
- Insure her new condo with a higher deductible limit.
- Save additional money from each paycheck in order to fund any potential losses.
- Enter a hold-harmless agreement with her condo association.
Answer: A) Purchase new door locks, a security system, and a fire alarm.
Purchasing new locks, security systems, and fire alarms are all examples of risk control.
Risk control is used to reduce the frequency and severity of losses. There are six risk-control techniques:
- Avoidance – This is the act of never taking an action. With avoidance, the individual is choosing to never partake in an activity. That way, a loss can never happen. For example, one may choose to never use the stove to cook in the house so that there is no risk of starting a fire from using the stove.
- Diversification – The process of dividing up loss exposure and spreading the exposure over multiple projects or regions is diversification. For example, choosing to invest in five different stocks and five different bonds in five different industries to ensure that the investor will not be financially crippled if one company or one segment performs poorly.
- Duplication – The process of creating a duplicate or backup of information and personal property. Backing up data from a computer to a cloud server to save critical data in case the physical computer breaks down is one example.
- Loss prevention – Any risk-control method that reduces the frequency of loss. For example, a deadbolt lock keeps burglars out of the home, reducing the frequency of theft.
- Loss reduction – Any risk-control technique that reduces the severity of a loss is loss reduction. For example, fireproof shingles minimize the damage caused by a fire. A burglar alarm is an example of risk control that is both loss-preventing and loss-reducing because it deters a burglary from happening (loss-preventing) and reduces the loss that does occur as police will arrive at the scene (loss reducing).
- Separation – This is the act of splitting up and isolating one exposure from another. This helps to minimize the effect of a single loss. Separating a collection of high-value pieces of artwork so some are stored at home and some are stored at the bank is an example of separation.
On your exam, you will be given a scenario like the one seen above; it is your job to understand what is being asked of you and how to solve or recommend a solution to the scenario.
Free Practice Exam
Ready to get started studying? We’re here to help (for free). Download our free CPCU® 551 practice exams to get a feel for the type of questions you will see on the exam.
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For more information about the CPCU® 551 exam, checkout some of our other free resources:
- CPCU® 551 exam questions
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- CPCU® 551 flash cards
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- CPCU® Designation Overview
- CPCU® Exam Pass Rates
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CPCU® 551 exams are administered by the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI does not administer the actual exams, we are an independent resource of free content, advice, and study material for professional insurance education. This blog is intended for informational purposes only, to inform prospective students of the benefit of the CPCU® 551 designation.
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